Should companies be paying dividends right now?

COVID-19 has brought the apparent trade-off between shareholders and society to a head.

by Alex Edmans

In the midst of a global pandemic, many companies are correctly focusing on society, by paying furloughed employees, donating products, and prioritising the most vulnerable customers.

But investors are reminding companies of their responsibilities to them. The Investment Association wrote to all FTSE chairs stressing that “dividends are an important income stream for pension funds and charities, as well as ordinary savers and pensioners … shareholders would be concerned if companies unnecessarily reduced or rebased the dividend level.” The FT’s Lex column cautioned that “if all UK businesses stop paying dividends, the impact would be dreadful.”

So companies seem to be caught between Scylla and Charybdis. If they focus too much on employees and customers, they risk seriously harming their investors. It seems that they might have to let some workers go, to protect the dividend.

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